Pakistan Strategy: IMF Deal - Signed, Sealed, Delivered!,
- The Executive Board of the IMF yesterday approved a 39-month extended arrangement under the Extended Fund Facility (EFF) for Pakistan for an amount of ~US$6bn (210% of quota).
- Upon the board’s approval, an upfront amount equivalent to US$1bn will be disbursed immediately, and the remaining will be phased in, subject to quarterly reviews.
- The initial statement clearly outlines program emphasis on: i) fiscal consolidation (4-5% of GDP over the program period), ii) a flexible market-determined exchange rate regime complemented by tight monetary response (we expect 150bps rate hike in Jul’19 MPC meeting), and iii) structural reforms in the energy sector and SOEs.
- While an approval from the IMF Board had largely been expected, initial disbursement at US$1bn (SDR716mn) is on the higher side vis-à-vis market expectations and is likely to be cheered, at least in the very near term.
- That said, positive euphoria is likely to be countered by concerns on Cyclicals (Cements, Fertz, Steel et al) and leveraged plays particularly given IMF expectation of FY20 avg. CPI at 13.0%, by default indicating a rise in interest rates.
AKD Research
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